There are many reasons why charities borrow money. They may need a loan for a third party with the charging of interest. Money lending is not a charity object; they do it for future investments. Workers need to think outside the box to make the deal possible and beneficial for both sides.
Actually, it’s the matter of social finances – to arrange the innovative funding. The classical scheme about the same day payday loans doesn’t work here – even if the charity needs money urgently, it should prove the purpose of fulfilling other requirements.
According to Charitable Organization Law, these institutions are completely non-profit. The only people, who control the assets, are the trustees. They are in charge of bringing charity's mission into life and ensure that financial deals run well. Similar facilities usually are not taxed by the Internal Revenue Service. Yet, some irrelevant business activity can be taxed, when it’s detected.
For being a non-profit foundation, every charity has to pass three tests:
So, charity can't provide corporate income. It analyzes options for borrowing money and plans the terms of repayment. Any bank wants a decent profile of a company with a dependable source to get cash for repayment from.
Charities may need to buy some lands or buildings. It's a good practice to have at least three trustees: a chairman, secretary, and a treasurer. They are not paid for performed duties, except for some circumstances. No special qualifications are required to become a charity's next trustee. But it's not enough to attend a few meetings – preparing for this social role means being ready for overtime work. Moreover, the property should be revised before the organization can use it.
Any trustee handles all the government documents and is accountable for every mistake. Even so, the problems those people meet are pretty specific. First, it's about indemnities or personal interest in making decisions. The important thing here is finding an alternative way to prevent a conflict. In this case, the borrowing money process will be harmless for the institution.
Charities have many needs and fees to cover. If they’ve already asked for money, probably potential investors refused. It happens for some kind of infrastructure project or an upgraded IT system. Nowadays there are such types of loans:
Repayment on a fixed date or social return - you can choose anyway. It depends on the initial purpose of the loan.
Borrowing by charities is not always secured, as trustees tend to believe. They need to act properly and lawfully all the time; taking a loan is not a game for bluffing. Show interest in the company's position and be aware of possible liabilities. Among the popular ones are financial loss due to improper actions or a third party with a legal claim. Such problems or financial mistakes can lead to bankruptcy.
The trustees need to be sure about the accountability of all the members. The Commission takes regulatory action against institutions that fail to provide accounts' copies.
What about the internal resources? Here comes “the rule of prudence”, which states trustees must:
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The best thing still remains to find another source of cash. Borrowing money must follow very strict rules, and may take a lot of time. So, if you are one of the trustees, take a break to determine – whether your charity needs money right now?
But sometimes it's impossible to develop a project without extra money. The external investments are the engines for a start-up and the infamous organization. Trustees have to consider money borrowing not as the only, but as the possible option. Strong planning and cash management skills would be useful. When the charity has a strong and reliable vision, lenders usually don't refuse. Be prepared for the circumstances and hard work to be done before closing a deal.
Even with adequate grant support, you can't rely on a single money sponsor. Possessing a few more sources will increase financial sustainability. Besides, more connections for charity – more opportunities to get a significant social influence.
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